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LBOs Dominate Leveraged Loan Issuance in 3Q18

loan issuance by purpose

While leveraged loan issuance in the U.S. slowed in 2018’s third quarter, LBO activity surged, thanks to huge credits backing Refinitiv, Akzo Nobel, and Envision Healthcare.

These three deals comprise nearly 40% of all LBO loan activity over the past three months. The remaining $30 billion is not exactly small potatoes. In total, LBO activity in the third quarter hit $48.3 billion, a record, according to LCD. – Staff reports

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Leveraged Loan Default Rate Dips Again After Third Straight Blemish-Free Month

leveraged loan defaults

For a third consecutive month there were no new defaults among constituents of the S&P/LSTA Leveraged Loan Index. Consequently, the default rate fell to a 10-month low of 1.81% in September, from 1.99% in August.

Though the rate has declined significantly from the three-year high of 2.42% at the end of March, it remains well inside the 3% historical average where, as detailed below in LCD’s quarterly default survey of loan portfolio managers, it is expected to stay for a couple more years.

By issuer count, the default rate fell to 1.59%, down from 1.71% at the end of August.

This marks the first three-month default-free streak in the Index since August 2014, though some potential situations loom.

The well-flagged 30-day grace period on American Tire’s missed Sept. 1 interest payment, for one, is set to expire at the end of September. Tweddle Group, meanwhile, is said to be negotiating a deal to equitize its term loans.

Other Index issuers whose debt is trading in technical distress include American Commercial LinesCaelus EnergyCatalina MarketingEmpire Generating Co.Longview PowerDavid’s BridalFullBeauty BrandsCrossMarkPetcoPhillips Pet Food & SuppliesCTI FoodsDixie ElectricAcademy LtdAcosta, and Revlon, among others. – Staff reports

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S&P Global Ratings Publishes Comprehensive CLO Primer

S&P Global Ratings recently published a comprehensive primer to provide a high-level overview of the collateralized loan obligation (CLO) market.

The Primer begins with “What is a CLO?” and covers topics such as:

  • The typical structure of a CLO
  • What is a broadly syndicated loan?
  • How is the portfolio of a CLO composed and how do the different tests work?
  • The typical CLO lifecyle
  • An overview of how S&P Global Ratings analyzes each CLO

You can view the CLO Primer here.

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Amid Investor Demand, Envision Accelerates Response Date on $5B Leveraged Loan

Leveraged loan investors considering the $5.05 billion first-lien term loan backing KKR’s buyout of Envision Healthcare have until tomorrow to commit to the deal, as opposed to the original deadline of Oct. 1, according to sources.

No further changes on the Credit Suisse-led deal were announced.

Price talk for the seven-year covenant-lite TLB is L+400, with a 0% LIBOR floor and an OID of 99–99.5. That works out to a yield to maturity of about 6.59–6.68%. Lenders are offered six months of 101 soft call protection.

The full arranger group includes Citi, Morgan Stanley, Barclays, Goldman Sachs, Jefferies, UBS, RBC Capital Markets, Societe Generale, HSBC, Mizuho, BMO Capital Markets, SunTrust Robinson Humphrey, Credit Agricole, and KKR Capital Markets.

Agencies have assigned ratings of B+/B1 to the first-lien facility, which includes a $300 million revolver due 2023, with a 3 recovery rating from S&P Global Ratings. A $550 million ABL facility is rated BB/Ba1, with a 1 recovery rating. Corporate ratings are B+/B2, with negative and stable outlooks, respectively.

Additional financing for the buyout will come from a $1.625 billion offering of eight-year (non-call three) unsecured notes.

KKR announced in June that it was taking Envision private for $46 per share in a deal valued at roughly $9.9 billion, including debt. Envision (NYSE:EVHC) is a provider of physician-led services and post-acute care, and ambulatory-surgery services. — Jon Hemingway

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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US CLO Issuance Continues on Record Pace; $99B YTD

US CLO issuanceCLO issuance in the U.S. has totaled $99 billion already this year, easily outpacing the $71 billion at this point one year ago, according to LCD. The CLO market is on pace to top the record $124 billion in 2014.

CLOs are special-purpose vehicles set up to hold and manage pools of leveraged loans.

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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European CLO Issuance Continues on Record Pace

Europe CLO issuance

Issuance of collateralized loan obligation vehicles in Europe so far this year, at €20.41 billion, has nearly topped the €20.91 billion seen during all of 2017, according to LCD.

While activity in the segment is expected to roll on, a pair of huge cross-border LBOs to clear market recently – Refinitiv and Akzo Nobel – did cause some consternation for CLO players, as those deals priced at a tighter level than expected, market sources said.

Refinitiv’s $2.75 billion-equivalent euro-denominated term loan priced at E+400, after being initially launched to market at E+425, while a €1.79 billion credit for Akzo eventually priced at E+375 after being first talked at E+425. Pricing on both was cut due to investor demand.

Refinitiv backed Blackstone’s $17 billion acquisition of a Thomson Reuters Financial & Risk unit stake. Akzo backed Carlyle and GIC’s buyout of the company.

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.